2015年中国能源策略研究

IEEJ：June 2015 ○ｃ IEEJ 2015

New Development of China's Energy Strategy

Zhang Ping

Senior Researcher

Statistics Information Group, Energy Data and Modelling Center

Growing dependence on energy imports

The Chinese economy moved onto a high growth path upon its accession to the World Trade Organization in 2001. In terms of nominal gross domestic product, China passed the United Kingdom in 2005, Germany in 2006 and Japan in 2010, becoming the world's second largest economy. Its primary energy consumption expanded rapidly in line with high economic growth, allowing China to replace the United States as the world's largest energy consumer in 2009 (Figure 1).

Figure 1 Primary energy consumption trends in major countries

Sources: IEA, "Energy Balances of OECD Countries 2014 Edition," "Energy Balances of Non-OECD Countries 2014 Edition" Data for China in 2013 and 2014 are estimated based on gazettes of the National Bureau of Statistics of China. India Russia China U.S. Japan

China's domestic energy resources are concentrated in coal. Domestic oil and natural gas output growth has failed to catch up with consumption growth, forcing China's dependence on oil and gas imports to increase. Its oil consumption stood at a little more than 50%1 of U.S. consumption in 2014 but is expected to expand to 126% of U.S. consumption2 in 2040. Its dependence on oil imports will thus increase. China also depends on the Middle East for more than 50% of oil imports (Figure 2). Therefore, the fluid Middle East situation, piracy, terrorism, China's territorial disputes with other countries in the South and East China Seas, and other 1

2 IEA, "OIL Medium-Term Market Report 2015" IEEJ, "Asia/World Energy Outlook 2014 (Reference Scenario)"

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destabilizing factors can be risks for stable oil supply.

China’s annual average natural gas consumption growth between 2000 and 2013 stood at 16% far exceeding the average real GDP growth of 10%. China's self-sufficiency rate for natural gas dropped to 70.4% in 2014. Depending on the government's environment-friendly policy, consumption of natural gas as a substitute for coal will increase rapidly, boosting China's dependence on natural gas imports further.

Figure 2 Crude oil import trends by region

Source: China OGP In millions of tons Others 4.3% Africa 21.1% Latin America 10.8% Russia 10.7% Middle East 52.1% Energy security or how to secure fast-growing oil and natural gas imports is an urgent challenge for China.

Strategy to secure resources in world

Under five-year energy development plans, China has persistently emphasized a policy of basing its energy security strategy on domestic resources, continuing to enhance resources exploration in domestic locations and neighboring waters including deep-sea areas. Actually, however, domestic oil and natural gas output growth has failed to catch up with consumption growth due to resource shortages. Therefore, the Chinese government has come up with a policy of using two resources and two markets, or domestic and overseas resources and markets. Since the 1990s, it has encouraged the three major state-run oil companies -- China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) -- to promote overseas expansion through joint overseas resources development, participation in overseas projects, overseas resources acquisitions and other deals, taking strategic actions to obtain interests in energy resources in various locations of the world. These Chinese oil companies lagged far behind European and American firms in overseas expansion and tended to expand into riskier locations to avoid competition with international oil

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majors. They frequently ignored profitability, giving priority to acquiring overseas oil interests. Nevertheless, their overseas expansion efforts might have been considerably useful for developing their human resources, learning relevant technologies and know-how, and accumulating experiences.

Among regions in the world, Africa has great potential for China, produces crude oil of favorable nature and is easier for China to enter. The region is also useful for China to diversify energy resource supply sources. Therefore, Africa has been one of the priority targets for China’s overseas resources exploration. From the viewpoint of security, China has viewed Central Asia and Russia contiguous with China as a top priority target. But resource-rich Russia had earlier looked to Europe rather than China, falling short of making the progress China expected in cooperation with it3.

Western countries and Russia had already developed oilfields featuring less cost and more resources in the Middle East, making it difficult for Chinese companies to expand into the region. Nevertheless, China has developed friendly relations with major Middle East oil producing countries like Saudi Arabia and the United Arab Emirates with its attitude of refraining from intervening in religious disputes and power struggles under its persistent foreign policy of nonintervention in internal affairs, securing its stable crude oil trade with them. China has proactively participated in Iraq’s postwar restoration and enhanced relations with Iran that has traditionally been friendly with China. In this way, China has gradually expanded its interests in the Middle East.

Chinese oil companies have grown into some of the world’s largest firms4. In line with changes in domestic and foreign situations, they have changed their overseas expansion policies. After accumulating financial capabilities and experiences, they have shifted their overseas expansion strategy from the obtainment of subcontracts for small oilfield development projects to the acquisition of interests in favorable resources development projects through the direct purchase of large Western energy companies.

Particularly, the 2008 global financial crisis triggered Chinese oil companies’ acquisition of energy firms in the United States, Canada, the United Kingdom, Spain and other industrial countries. CNOOC’s attempt to acquire U.S. oil firm Unocal Corp. in 2005 failed in the face of strong opposition from the U.S. Congress for national security reasons. After later persistent negotiations, however, CNOOC successfully acquired Canadian energy company Nexen for $15.1 billion in 2012. According to the “2014 China Oil and Gas Industry Development Analysis and Forecast Report Blue Book,” Chinese oil companies implemented more than 100 cooperation projects in 33 countries by the end of 2013, obtaining 120 million tons in overseas crude oil production capacity and 22 billion cubic meters in natural gas capacity. 3 Takehara, Mika “Reasons for Chinese State-run Oil Companies’ Eagerness to Expand into Africa”

4 Sinopec and CNPC placed fourth and fifth in a world company ranking in 2013.

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Channels for crude oil import transportation to China, as well as Japan, had mostly been limited to sea lanes via the Straits of Hormuz and Malacca and the South and East China Seas, leaving oil supply security vulnerable. Since 2010, however, China has completed crude oil and natural gas pipelines from Central Asia, a crude oil pipeline from Russia, and crude oil and natural gas pipelines from Myanmar, establishing import routes from the four directions of north, south, east and west, substantially improving its energy security (Figure 3).

Figure 3 Crude oil and natural gas pipelines to China

Source: Prepared from people.com

“One Belt, One Road” initiative and energy strategy

When Chinese President Xi Jinping visited Central Asia and Southeast Asia in autumn of 2013, he proposed a Silk Road Economic Belt and a 21st century Maritime Silk Road, making the so-called “One Belt, One Road” initiative controversial. At a summit of the Asia Pacific Economic Cooperation forum in November 2014, President Xi demonstrated his strong will to promote the initiative.